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Round Analysis for Year 2018 Round 1 - C94323.

Each Team can earn a maximum of 5 stars. Stars represent an overall performance evaluation, much like the stars in the Morningstar ratings.
One star is issued for each of the following:

Contribution margin over 30%


Zero emergency loan
For total units across entire product line: satisfy at least 95% of demand for their products and can not carry more than 90 days of inventory.
Increase in stock price over last year
Profit greater than zero

Company Profit Margin Emer Loan Inventory Stock Price Total Grand
Chester 1 1

Hello Chester Team! For Round 1 you earned a total of

PROFITS : You earned no stars because your profits were negative at $- 7,409,394. Profits are listed on page 1 of the Capstone Courier . Losses are usually the
result of insufficient margin caused by a high cost structure and too low prices. Profit can also suffer from excessive expenditures in selling and advertising, heavy
interest payments on debt, and losses on liquidation (scrapping) of inventory when retiring a product line.
ANALYSIS - You may need to raise prices or reduce costs - or both. Watch your production schedule. Is it matched to a good sales forecast for each product?
CONTRIBUTION MARGIN: You earned no stars because your corporate contribution margin is 23.5%. Contribution margin is defined as:

Sales - (Direct Labor + Direct Materials + Inventory Carry)


Sales

It is reported on Page 1 of the Capstone Courier as an aggregate average of each team's product portfolio. A good benchmark for contribution margin is 30%. A
product-by-product margin computation is available on the Income Statement portion of your company's annual reports.
ANALYSIS - Watch your margins. It's difficult to maintain long-term success with contribution margins below 30%. Investments in cost There is downward pressure
on price across all market segments (50 cents per year). reduction strategies (automation/capacity expansion) should be considered, as should price increases.
Also check your MTBF against the Customer Buying Criteria on segment analysis pages of the simulation reports. You may be offering customers more reliability
than they care about.

EMERGENCY LOANS: You earned one star, because you avoided an emergency loan. Emergency loans are listed on Page 1 of the Capstone Courier. The
simulation gives you every benefit of a doubt, but if you are out of cash at the end of the year, "Big Al" arrives to give you just enough cash to bail you out -- at a 7.5
percentage point premium, of course. In the real world we often refer to emergency loans as "a liquidity crisis", "Chapter 11", or simply "Bankruptcy."
ANALYSIS - You have good cash management.
To diagnose your emergency loan, examine your Cash Flow statement. It represents the net flow of money into and out of your checking account. A positive
number indicates an inflow, a negative number an outflow. For example, find the "Inventory" line. If your inventory position increased compared to last year, you had
to pay for the additional inventory, and that resulted in a cash outflow. On the other hand, if you sold all of your old inventory, that represented a cash inflow.

INVENTORY: You earned no stars for your year-end inventory position. The ideal year-end inventory position is one unit in each product line. In that case you
would know that every potential sale was made, and that inventory carrying cost was minimized. This is the goal of "Just In Time" inventory systems. In the
simulation, however, you cannot adjust production during the year to meet demand. Therefore, you must balance the risk of losing sales to competitors because of
stock outs against the cost of carrying additional inventory should your demand exceed your expectations. At some point inventories become excessive. A good
benchmark would be, "inventory levels should not exceed 60 days (two months) of Sales." For example, if your product's sales are $12 million, inventories should
not exceed $2 million.

To earn a star of your inventory management, each product must satisfy two conditions:
1. Teams must satisfy at least 95% of the demand they generate across the entire product line. Actual Total Industry Unit Sales/Potential Industry Unit Sales >=
95%.(on a per team basis)
2. Teams cannot carry more than 90 days of inventory defined as Total Unit Inventory/Total Units Sold<=25%.

ANALYSIS -CHECK FOR STOCK OUTS. You may have under-produced and turned away customers. Examine the ACTUAL VS. POTENTIAL graphs for each
segment analysis in the simulation reports. This will indicate how badly your stock out hurt you.
ANALYSIS -CHECK FOR EXCESSIVE INVENTORY LEVELS. On the Production Analysis (page 4), compare "Units Sold" with "Units in Inventory". Inventory
should be less than 1/6th of unit sales. Inventory consumes cash, drags down your performance measures, and in extreme cases drives emergency loans.
Inventory carry overheads chew into profits. Typical problems include:
1. Overly optimistic sales forecasts. Previous year customer demands (and segment growth rates) are listed for each market segment pages. Compare your sales
forecast figures against segment demand. Were sales expectations unrealistic? For example, if the segment demand ceiling was 3 million units, and there are
six teams with products in the segment, a "fair share" starting point is 500 thousand units per team. If you have a better than average product, your sales will be
higher. Below average products produce below average demand. But unless your product is dramatically better or worse than the other products in the
segment, you demand will be somewhere between 50% and 150% of average. This is discussed further in the help files on the website under "How do we
develop a unit sales forecast?"
2. Sometimes teams confuse the relationship between sales forecasts, production schedule, and production capacity.
Sales Forecasts only affect proformas. They are a tool - not a management "decision." When you enter a forecast, you force the software to use your
number to drive the Income Statement. When the simulation is processed on the web site, actual sales depend upon the actions of your competitors.
Production Schedule (on the Production spreadsheet of the student software) is the actual production for the year. This is added to the starting inventory.
Production occurs in monthly increments.
Production Capacity is the size of the factory. If the Capacity is 500 thousand, you can produce up to one million units by running 100% overtime. All units
produced above 500 thousand will be affected by time-and-a-half overtime charges. You buy or sell capacity, or simply leave it idle and unused.

STOCK PRICE: You earned no stars because your stock price fell last year by $- 14.73. Stock price is affected by performance, asset base, debt, dividend policy,
and number of shares outstanding. In a year of aggressive investment in plant expansion and automation, you would expect that the necessary debt load would
cause some uneasiness on the part of shareholders. But, if the stock price dips more than $15.00, it may be a warning sign of too much debt. The stock price can
also suffer in profitable years. For example, liquidation of plant brings in cash, but makes shareholders wonder about the long term competitive ramifications.
Paying dividends in excess of profits, or obtaining a Big Al emergency loan, will have a negative effect on stock price.
ANALYSIS - Your shareholders may riot at your annual meeting!

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